I have read with interest as National Underwriter haspublished numerous articles related to the back and forth betweengroups which, on the one hand, disavow contingent fee arrangementsand, on the other, defend the practice of brokers and agentsaccepting this form of compensation.

As 2010 president of the Risk and Insurance Management Society,I feel obligated to weigh in with the perspective of risk managerswho buy commercial insurance from these brokers and agents onbehalf of their employers–whether they be industrial, service,nonprofit, charitable or government entities, large or small.

For years, RIMS has staked outthe position that contingent commissions represent an inherentconflict of interest for the broker whose duty of loyalty is to theconsumer. Recognizing that contingent commissions are legal, wehave vigorously fought for full transparency and disclosure at ameaningful time in the insurance purchase transaction, as the NewYork Insurance Department has put forth regulations trying tobalance the interests of commerce with their mission of protectingconsumers.

In New York, RIMS filed numerous comment letters and attendedformal and informal meetings consistently urging the department torequire full and upfront disclosure of all forms of compensationthat insurance producers will accept.

The rationale for our position is that complete transparency, inthe absence of a ban on contingents, permits insurance buyers tomake educated and informed decisions and to discern whether theyare getting the best possible policy terms at the best price.

Meanwhile, the Independent Insurance Agents and Brokers of NewYork has advocated in favor of contingency fees, while at the sametime espousing transparency. These two concepts, however, arecontradictory, as compensation received on the back end of atransaction can only be disclosed as an estimate on the frontend.

The New York regulation does require that a reasonable estimatebe provided based on prior transactions, but this issue onlyfurther shows the murkiness that contingents lead us into.

Furthermore, IIABNY has challenged the New York InsuranceDepartment producer compensation regulation under the theory thatthe department lacks the statutory authority and, failing thatargument, that disclosure of compensation upon consumer request isso overly burdensome as to violate both the New York and U.S.Constitution's due process guarantees.

These groups, however, have consistently maintained the need fortransparency only upon and after a consumer has made the requestfor disclosure of compensation–yet this is essentially what the NewYork regulation calls for.

Under the regulation, producers are only required to providedetailed disclosure upon consumer request. In my opinion, thestated policies of those against the regulation do not foster arelationship of trust that should be implicit between a buyer andbroker in the insurance purchase transaction.

Most recently, in the Aug. 9 edition of NationalUnderwriter, the president and chief executive officer of theIndependent Insurance Agents and Brokers of America, Bob Rusbuldt,stated his belief that if agents and brokers stopped takingcontingent commissions it would, in reality, be bad for insurancepurchasers because it would force his members to focus on volume,which would be bad from a “risk management” perspective.

The IIABA president then went on to challenge Willis, which hasdisavowed contingent fees, to fully disclose all of its standardcommissions so that consumers can choose between potentially higherupfront fees or other forms of compensation, such as back-endcontingents.

While I applaud the challenge to Willis, why stop there? ManyRIMS members already insist upon complete disclosure up front, atwhich time they are able to discern exactly what they are payingtheir broker. I, for one, insist my broker take this position as Ibelieve my due diligence as a risk manager and duty to my employerrequires it.

Last year, RIMS published “A Practical Guide to Insurance BrokerCompensation and Potential Conflicts of Interest for the RiskManager” to best serve our membership's interests. We are takingthe next step and making additional information available thatprovides guidance as to how our members can expressly prohibittheir broker from accepting a contingency fee on their business andmake explicit any upfront fees so they can determine which brokerthey will select to place their business.

In this way, the consumer will know at the outset what fees theywill be paying for their lines of insurance coverage.

While we recognize that contingent fees are legal, perhaps theIIABA will take up the challenge it posed to Willis and getsquarely behind full transparency and disclosure voluntarily. Inthat way, perhaps we can settle the issue once and for all.

Terry Fleming is president of the Risk andInsurance Management Society, as well as director of the Divisionof Risk Management, in Montgomery County, Md.